How Much Simplification is Wise in Modelling Exchange Rates?

  • Jacques Melitz
  • Robert Owen

Abstract

Simple models of the exchange rate generally do not give satisfaction in empirical work. We lack a standard and simple specification of the exchange rate which is dependable. The same set of equations usually yields substantially different results for different data samples, even with respect to sign, and our successful efforts tend to break down with the extension of the sample period. In these circumstances, it is important to examine the question of the minimum degree of sophistication that is wise in analysing exchange rates. My concern with this question should not imply, however, any brief in favour of complexity as such. My only objection to rudimentary models is that they do not work.1

Keywords

Income Coherence Assure Volatility 

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Copyright information

© Paul De Grauwe and Theo Peeters 1983

Authors and Affiliations

  • Jacques Melitz
  • Robert Owen

There are no affiliations available

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